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The Consumer Takes a Holiday

On July 29, 2011, in Economy, by Tim

Aside from the dismal overall readings on the U.S. economy during the first six months of 2011 as detailed in this item a short time ago, the the other important take-away from this morning’s report on economic growth was the virtual absence of the once indefatigable American consumer as indicated by only the tiniest of red slivers in the right-most bar of the chart below, the worst showing since the depths of the recession in 2009.

While there are those like myself who have long thought that personal consumption accounting for 70 percent of an economy was never a good idea (particularly when much of that spending was being done with borrowed money), at times like this, that  point is made clear. As they continue to deleverage, slowly working their way out from underneath a big pile of debt, consumer confidence has been shaken in recent months, in no small part due to the realization of how over-leveraged they were and, in many cases, continue to be.

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73 Percent Say Economy is Getting Worse

On July 28, 2011, in Economy, by Tim

The most recent Gallup survey on consumer confidence shows that 73 percent of Americans think the U.S. economy is getting worse, up from 62 percent earlier in the month and now at the highest level since March 2009 when it appeared as though we had sunk into the abyss.

The chart above is the longest timeframe available, so, it’s not clear just how dismal things looked back then in this poll, but any comparisons to March 2009 are clearly not good.

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Consumer Sentiment Plunges

On July 15, 2011, in Economy, by Tim

The Reuters/University of Michigan consumer sentiment index plunged to its lowest level since March 2009, down from 71.5 in June to just 63.8 in the first of two readings in July, as a faltering economy, weakening labor market, and the ongoing debate over the debt ceiling and spending cuts sapped the confidence of Americans.

Interestingly, the last time the mood of the consumer was this sour, the S&P500 stock index was below 800, more than 42 percent below its current level.

Though the July drop pales in comparison to the 10 point plunge in March (just as gasoline prices were beginning to soar) and the 12.7 point free-fall in October 2008, it was one of the biggest monthly declines in the last decade. The current  conditions index fell from 82.0 in June to 76.3 in July and the expectations index dropped nine points, from 64.8 to 55.8.

Unlike earlier in the year, rising inflation expectations played no role in the overall decline as the one-year outlook for consumer prices fell from 3.8 percent to 3.4 percent and the five year inflation forecast dipped from 3.0 percent to 2.8 percent.

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Retail Sales About Flat in June

On July 14, 2011, in Economy, by Tim

The Census Bureau reported(.pdf) that U.S. retail sales rose just 0.1 percent in June as gains in building material, auto, and clothing sales were offset by falling gasoline prices. Excluding motor vehicles, sales were flat last month.

Gasoline station sales fell 1.3 percent in June after rising steadily during the first five months of the year but, from year ago levels, sales are still 23.6 percent higher. Building material and garden equipment retailers saw a 1.3 percent increase in sales last month, up 7.8 percent on a year-over-year basis, as homeowners continue to increase spending.

Auto sales rose 0.8 percent as part of an ongoing recovery from the slowdown induced by the March earthquake and tsunami in Japan. Excluding autos, gasoline, and building materials, sales rose just 0.1 percent in June, the smallest gain so far this year.

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The California Budget Crisis – 2011 Edition

On June 24, 2011, in Debt, Our Culture, by Tim

It looks like the California budget crisis might again be an extended affair this year despite elected officials not getting paid after they failed to produce a balanced budget by the deadline earlier in the week. Kudos to Controller John Chaing who, according to this Sacramento Bee story the other day, enforced Proposition 25 and blocked pay to state legislators until such time that a balanced budget is sent to Governor Brown’s office.

Here’s one of the reasons why California’s finances are in such a mess – guys like Frank Acosta who collect wages and benefits of more than $60,000 a year for mowing the grass at public golf courses as detailed in this SacBee report.

For 23 years Frank Acosta has tended the grass on Sacramento’s public golf courses. He earns about $60,000 a year, plus a city pension and health benefits.

It’s a good living, but it’s one that officials say the city can no longer afford. As part of their effort to cut costs and plug a $39 million budget deficit, the Sacramento City Council voted last month to outsource maintenance jobs at city-owned golf courses.

If finalized this fall, the move will result in 38 city workers losing their jobs, but will save the city an estimated $500,000 a year, according to city budget officials.

“I sit at home and think, ‘Man, I have to look for another job after 23 years,’ ” Acosta said. “I never thought of that, but I guess I should have.”

The agreement would mark the first time the city has laid off workers to hire a private contractor, according to labor union officials.

And it probably won’t be the last…

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Roach Calls U.S. Consumers “Zombies”

On June 21, 2011, in Economy, Our Culture, by Tim

Stephen Roach at Morgan Stanley doesn’t hold out much hope for higher levels of GDP growth in the U.S. in the wake of a three decade long credit binge that had Americans borrowing and spending like there was no tomorrow. It turns out there is a tomorrow, and that tomorrow is today, details of this saga provided in this story at CNBC.

U.S. consumers, hobbled by debt and high unemployment, have been deleveraging, a process that will take another 3 to 5 years, Stephen Roach, Morgan Stanley’s non-executive chairman and the author of The Next Asia told CNBC on Tuesday.

According to Roach, American consumers, whose buying habits account for 70 percent of America’s gross domestic product (GDP), had effectively become “zombies” after the financial crisis.

“In the last 13 quarters since the first quarter of 2008, consumer spending growth in the United States has grown an average annual rate of 0.5 percent. Never before has the American consumer…been this weak for this long,” he said. “So something big is going on post-crisis and that’s why I refer to them as the zombie generation.”

Oh well, American consumers have been called worse.

Just the fact that the label “consumers” is so thoughtlessly applied to the greatest generation of shoppers the world has ever seen – as if they were locusts – should have been a tip-off that the late-1990s/early-2000s U.S. spending boom wouldn’t last.

The whole “everyone gets wealthy through asset inflation” approach worked pretty good there for a decade or so, but, it just might be time to finally ditch the old adage, “Never count out the American consumer”. It sounds like Roach has already counted them out.

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